Chicago Pub­lic Schools Fares Bet­ter on Short-Term Rates

The Bond Buyer - - Regions - By yvette ShieldS

CHICAGO – Chicago Pub­lic Schools slashed its short-term bor­row­ing rates by more than two per­cent­age points in its first tax an­tic­i­pa­tion note is­sue of the fis­cal year.

The district re­ceived eight bids to­tal­ing $1.15 bil­lion on its $200 mil­lion, un­rated TAN is­sue that sold com­pet­i­tively Thurs­day. It marked the district’s first com­pet­i­tive sale of notes in at least 25 years. The pa­per was pur­chased by JPMor­gan at a 2.45% in­ter­est rate.

Though the rate re­mains high for a se­cu­rity ma­tur­ing at the end of March, it marks a sharp im­prove­ment from the rates paid pre­vi­ous sales as the district grap­pled with a bud­get and liq­uid­ity cri­sis. The district paid a rate of about 4.8 % on TANs sold in the last fis­cal year — rates that were set based on a bench­mark plus a spread and typ­i­cally di­rectly pur­chased.

“To­day’s suc­cess­ful com­pet­i­tively bid note sale is fur­ther con­fir­ma­tion of the faith in­vestors have in the district’s fi­nances and will al­low CPS to cut short-term bor­row­ing costs in half and pro­mote the con­tin­ued fi­nan­cial sta­bil­ity our schools need to ac­cel­er­ate aca­demic progress,” CPS chief ex­ec­u­tive of­fi­cer Jan­ice Jack­son said in a state­ment.

CPS, which is­sues through its Board of Ed­u­ca­tion, said it ex­pects to cut its short­term bor­row­ing costs by about $10 mil­lion this year.

The district ex­pects to limit its max­i­mum amount of TANs out­stand­ing at any one time to $994 mil­lion. That’s a re­duc­tion from $1.1 bil­lion last year and $1.55 bil­lion the pre­vi­ous year.

Re­ceiv­ing mul­ti­ple bids also marked a pos­i­tive.

At the height of the district’s fis­cal cri­sis, when it grap­pled with a $1 bil­lion deficit and un­cer­tainty over whether the state would pro­vide ad­di­tional aid and pen­sion re­lief, rat­ing agen­cies raised con­cerns over the district’s need to main­tain mar­ket ac­cess for cash flow bor­row­ing

The district has counted on short-term bor­row­ing to man­age through its bud­getary and liq­uid­ity cri­sis as its op­er­at­ing fund bal­ance tum­bled from $1.2 bil­lion in 2015 to a neg­a­tive $275 mil­lion in 2017. The district is re­build­ing and opened the year with a $231 mil­lion gen­eral op­er­at­ing fund bal­ance.

Liq­uid­ity strains eased last year when the state ap­proved an over­haul of school aid pro­vid­ing more fund­ing and new pen­sion sup­port but the re­liance on TANs con­tin­ues, al­beit at lower lev­els.

The notes are lim­ited obli­ga­tions of the district se­cured solely by pledged tax col­lec­tions. The district’s levy for the year is $2.46 bil­lion, doled out in two in­stall­ments.

Based on cash flow pro­jec­tions, the district ex­pects fresh TAN is­sues through Fe­bru­ary all of which would be re­paid with the first in­stall­ment levy. CPS will is­sue ad­di­tional TANs in April through July re­paid with sec­ond in­stall­ment taxes.

The type of sale used for fu­ture TAN sales “will de­pend on mar­ket con­di­tions and cash flow,” the district said.

The district has re­ceived a se­ries of pos­i­tive credit ac­tions since the state ap­proved new fund­ing, but three of the four rat­ing agen­cies still hold the district at junk lev­els with Kroll Bond Rat­ing Agency as­sign­ing a low in­vest­ment grade rat­ing. ◽

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